Strategy

End Looks Near for Carlyle Capital

Unable to pay its margin calls and wracked by billions of dollars in debt defaults, the company is resigned to foreclosure.
Stephen TaubMarch 13, 2008

Carlyle Capital Corp. rocked the financial world Thursday when it announced it was unable to reach an agreement with its lenders and that the lenders are likely to take possession of its remaining assets.

The company’s only current portfolio assets are U.S. government agency Triple-A rated residential mortgage-backed securities (RMBS).

During the last seven business days, the company has received margin calls in excess of $400 million. It could not pay the margin calls, so its lenders proceeded to foreclose on the RMBS collateral.

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Altogether, the company said it has defaulted on $16.6 billion of debt. The remaining indebtedness is expected soon to go into default, it conceded.

Carlyle has already sold more than $5 billion of its indebtedness, according to an Associated Press report.

Carlyle Capital’s parent, The Carlyle Group, participated in the negotiations with the lenders and was prepared to provide substantial additional capital if a successful refinancing could be achieved. Negotiations deteriorated late on March 12 when, among other things, the pricing service utilized by some lenders reported a drop in the value of the RMBS collateral that is expected to result in additional margin calls of about $97.5 million.

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